Fund sales hit record high, but UK funds out in the cold

Fund sales have hit a new record in September with net sales of £5.6 billion, according to the Investment Association's (IA) monthly statistics of UK investor behaviour.

The UK stock market, however, was not in favour, with investors instead turning to global and European funds. UK fund sales were negative, with £103 million dumped during the month.

Fixed income was the most popular asset class in the third quarter, collecting £4.9 billion, followed by equity funds, which record sales of £3.4 billion. The global and Europe ex UK were the second and third best-selling IA sectors. 

Notably, the fifth most popular sector was ‘volatility managed’, which launched in April this year. The sector’s popularity signals that investors are getting ready to weather a potential storm.

-The top 10 most popular investment funds – October 2017

Alastair Wainwright, fund market specialist at the IA, says: ‘In the year to end of September 2017, net retail sales totalled £33.7 billion. The third quarter of 2017 was the highest selling quarter on record with net retail sales of £14 billion, closely followed by the second quarter of 2017 at £12.1 billion.’

But Jason Hollands, of Tilney Bestinvest, points out that while this data is seemingly bullish, and might suggest top-of-the-market exuberance, a different picture emerges below the bonnet.

‘The lion share of these fund inflows – a cool £4.9 billion – poured into fixed income funds, which are traditionally considered as cautious investments, rather than equities,’ he points out. 

Speculating on why investors are giving UK funds the cold shoulder Hollands said there is growing scepticism about how much longer this eight-year long equity bull market can continue. Moreover, he adds that of late bond yields have crept up as central banks have shifted their tone. 

Further, he adds: ‘The public have endured a daily diet of gloom and uncertainties around Brexit, the government is fragile and a hard Left Labour Party is waiting in the wings and despite its resilience in the face of uncertainties the UK economy undoubtedly faces headwinds all the while wage growth lags inflation.’ But he argues that it is important not to confuse the UK stock market with the domestic economy. ‘The UK equity market is highly international in nature and so it would be wrong to entirely shun UK equities in favour of markets such as the US where valuations look a lot more demanding on most measures.’ 

It is not just retail investors that have lost their appetite for UK equities Money Observer’s asset allocation panel, which feature in the magazine every quarter, are underweight the region. Keith Wade, chief economist and strategist at Schroders, is bearish amid concerns the underlying economy is showing signs of slowly decelerating

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